Social Website Dysphoria

The Lesson Of The Giants

Let’s take a typical example. At the end of the bubble days, all web-based advertising was collapsing. As company after company failed and traffic dropped on the “major sites” dramatically, the advertisers were not interested to place ads any more. Ad networks were shrinking and finding it even more difficult to get new clients. The huge advertisers were all dropping out of the Web, disappointed: many were definitely thinking that you couldn’t make any money out of it. Web ads were once classified as “one of the most stupid ideas of the Internet Era”.

And yet, a giant survived: Google.

As a matter of fact, Google did not only survive, they thrived. As more and more web-ad networks collapsed, Google bought them cheap, and sold more and more, and grew more and more. How was that possible at all!? What “magic secret” did Google have up their sleeves that nobody else did?

The answer is usually “oh, they had the search engine”, and while that’s definitely one aspect of it, the real reason is not so obvious. Sure, Google can profile users and serve better ads, and they used that argument of “superior technology” (which is undeniable!) to catch more customers. But that wasn’t the secret to their success.

A web-based ad campaign was expensive, even in 2000. What Google thought instead was a different business model. Instead of buying “ad space” and getting a huge salesforce world-wide to get new clients, they thought that it would be way easier and far cheaper to let website owners share the revenues with them.

This model is not so innovative. After all, even FriendFinder used the concept of “affiliation”, which was, for them, a major success: announce our service to your friends, and you can make money out of it — maybe, with luck, and a lot of friends, you might even be able to cover the costs of your own subscription. Of course, the majority of the users would never make enough to cover their costs.

Google used a similar model, but was way more generous. You didn’t have to be a customer of Google to be an affiliate. Also, you didn’t need to have a “high-traffic” site at all. This is where Google was more clever than the competition: all of them were in search of the highest-traffic sites and fighting vicious battles to be allowed to place ads there; and, on the other end, everybody was trying really hard to become a high-traffic site, in order to be able to sell ads to the big web ad networks.

Google targeted the small fry. Instead of focusing on the huge sites — which were taken by the big web ad corps anyway — they had millions of small sites: common blogs, forums for niche markets, small communities. And they had a wonderful technology that indexed pages and could profile ads targeted exactly for those small communities. So they were happy to pay a few cents for some banner space — and charge a few cents more to companies willing to target exactly those communities. They kept the difference.

And what a difference it was! Soon, everybody was happy to “offer” banner space to Google. Why not? What would you lose? A few pixels on your site? At least you’d get a few cents here and there, and these would add up. Google didn’t care if you just had 200 visitors and paid you to the proportion of your traffic. But it didn’t exclude you. They shared their revenues with all customers, big or small — and, of course, there are millions of small ones (these days, probably billions).

This business model of sharing your revenue with your customers, or, put in another way, give your clients the opportunity of making money too, was probably the biggest lesson from the Web 1.0 era, and it’s completely astonishing to me how so few companies have learned it. Web ads, once deemed to be a complete and utter conceptual failure as a business model, empowers the coolest and trendiest megacorp of the world. Just because they did it right — and it took some time.

They weren’t the only ones, of course. You can pick the next two best examples, also long-term survivors of the Web 1.0 era. eBay is the most obvious one: they don’t “push” services to anybody. Instead they just put sellers and buyers in touch. They just get a slice of the proceedings. That’s it. PayPal, an eBay company, works the same way. But you can think of Amazon.com nowadays as the same example: once they were restricted to deal with the huge book publishers, but Amazon.com saw what eBay was doing with the small merchants and basically replicated the model. Don’t minimise the small, individual merchant that just spends US$10 a month: instead, get millions of those.

And the beauty of this model is that you can give away subscriptions for free. It’s only when people buy and sell that you get a slice of their transactions. But a “free user” that suddenly completes a lot of profitable transactions is happy enough to pay a little bit — if it’s really, really little — to be able to use the service. If you look at all three models — Google, eBay/PayPal, Amazon — you’ll see that all offer products to sell that people want to buy so long as they’re cheap; and all offer the opportunity for people to sell products too, and just take a tiny commission out of sales.

Looking backwards in time, this might seem obvious now: if you can make your users earn some money by being subscribed to your service, your users will not only be eager supporters of your service, but they will look at you as a business enabler. They will be grateful. And, of course, they will fight hard for you to succeed — since they’ll make more and more money if you grow and grow.